Cash Flow Statement
QUICK ANSWER
A cash flow statement is a financial report that shows the actual movement of cash into and out of a business over a specific period. Unlike the income statement, which records revenues and expenses on an accrual basis, the cash flow statement focuses purely on cash, making it one of the most reliable indicators of a company's short-term financial health.
In depth
The cash flow statement is divided into three sections. Operating activities cover cash generated or used in the core business operations, such as collections from customers and payments to suppliers and employees. Investing activities capture cash spent on or received from long-term assets, such as the purchase of equipment or proceeds from selling an investment. Financing activities reflect cash movements related to debt, equity, and dividends, such as loan repayments or capital raised from investors.
Together, these three sections give a complete picture of where a company's cash is coming from and where it is going. A business can be profitable on paper while still running into serious cash flow problems if receivables are slow to collect or if capital expenditures are high. This is why lenders, investors, and management teams pay close attention to the cash flow statement alongside the income statement and balance sheet. For startups especially, maintaining a positive operating cash flow is a key milestone that signals the business can sustain itself without relying entirely on external funding.